Strategic Planning Analogy #531: Would You Want an Auto Mechanic to Cut Your Hair?

THE STORY
Would you want an auto mechanic to cut your hair? Think about it for a moment. Auto mechanics are very skilled at using tools to accomplish a task. Isn’t that what hairdressers do?

Hmmmmm…

Okay, I thought about it for a moment. No thank you. I think I’d rather go to a hair-cutting professional than an auto mechanic to get my hair cut.

THE ANALOGY
Just because someone is skilled at using automotive tools to repair an engine does not mean they would be skilled at using scissors to cut my hair. First of all, the tools are different. Second of all, the objective is different. Third, knowledge needed is different. Fourth a good hair stylist has a great intuitive sense of style and fashion, something not needed to be a great auto mechanic.

It seems so obvious. Give the task to the person who is skilled, trained and has a natural affinity towards it.

But that is not what I see in many areas of business today, particularly in the world of social media and other digital businesses. There seems to be this notion that nearly all tasks in the business should be done by engineers. After all, engineers are supposedly good at solving problems. Therefore, if everything is done by engineers, then all the problems will be solved. Right?

Well, to me that makes about as much sense as saying that because an auto mechanic is good with tools, I should give them scissors and have them cut my hair.

Even being the best mechanic in the world does not ensure that the person is any good at cutting hair. Similarly, being one of the best engineers gives no guarantee that the person has a clue about what it takes to be a great marketer, great strategist, great leader, etc.

No thank you. I think I’ll stick with the specialists.

THE PRINCIPLE
The principle here is that the skill sets needed to be great in disciplines such as strategic planning are not the same as the skill sets needed to be a great engineer. Therefore, do not fill those roles with engineers. Here are four reasons why.

1. Different Problems

Yes, engineers are good at solving certain types of problems, but that doesn’t mean they are good at solving all problems.

In particular, engineers tend to be good at the “how” questions:

• How do we get this done?
• How do we overcome this design roadblock?
• How do we turn an idea into a prototype?

However, there are a lot of questions that don’t begin with the word “how”:

• What problem should we be solving?
• Where is our competitive differentiation?
• Why should we win in the marketplace?
• Who is our key consumer and why will they prefer us over the competition?

In other words, engineers may excel at getting things done, but there are others who are probably better trained and more skilled at knowing which things should get done. Or to put it another way, engineers may be good at answering questions, but strategists are better at knowing which questions to ask.

Engineers like to talk about speed in execution, using buzzwords like “scrum” or “agile”. It’s as if speed is all that matters. But moving faster in the wrong direction does not get you closer to success. This is what I call the “lottery strategy”: the sooner I scratch more losing lottery tickets, the sooner I will scratch a winning ticket. That’s not strategy—that’s relying on luck. The odds are so low that you will most likely lose more money on what you spend on the lottery tickets than what you win.

No matter what many engineers may believe, success is not getting something done. Success is building an enduring business built upon a business model which is designed to win in the marketplace. Without the winning position and business model, all you may have succeeded in getting done is failure. Where’s the pride in that accomplishment?

Strategists are skilled in asking the right questions—to focus businesses on activities where they are more likely to succeed. Strategists can help engineers move from games of luck to games where the rules are in their favor.

2. Different Place

Engineers tend to spend their time focused on the lab. People like marketers and strategists focus their time in the marketplace.

In the lab, everyone is an engineer. They think all this technology stuff is cool just because it is technological. So putting the functionality of a smartphone into a watch is cool to them just because of the technological challenge. And since there is no dissention in the lab, they press on.

Out in the marketplace, things are different. There are problems which need to be solved. There are images which need to be maintained. And there are lots of firms offering a wide variety of options for solving these problems.

Consumers want to consume the best solution to their problem. To them, it is irrelevant whether the solution comes in a watch or in a magic orb. They will consume whatever is best for their needs. And it may just be that putting the functionality of a smartphone on a watch is not the most compelling solution—no matter how cool the engineers think the technological feat is.

Yes, you need people like engineers focused on the lab. But you also need people like strategists who are focused on the marketplace.

3. Easier to Learn Industry than Discipline

I’ve talked to a lot of people in retail store operations over the years and they all say the same thing. They’d rather hire someone with good people skills and train them in the retail industry than hire someone with lots of retail experience who has no people skills.

The reason is because some people are more naturally gifted in certain skill sets than others. These gifts are difficult to train to someone who doesn’t naturally have them. Without the right natural skill sets for a particular function, knowing the industry where you want to apply those gifts is not very useful. In fact, training about the industry to the right person is far easier than training in skill sets gifts to those who are in the industry but don’t have the gift.

As we’ve already seen, great engineers tend to be naturally gifted differently than marketers, strategists and others. Yet, these engineer-driven companies are hesitant to bring in non-engineers to help, because they are afraid they will not understand the industry.

Trust me, it is easier to hire great, naturally-gifted strategists and marketers and teach them your business than to take engineers who know your business and train them to think like marketers and strategists.

4. Remember the Failures

I have heard people say in response to the line of argument in this blog: “But look at all those successes like Google. They are engineer-driven and it worked. So I should be, too.”

My answer is this: For every successful firm like Google, there are thousands of failures using that same engineer-driven approach. Evidence would show that the engineer-driven model has produced far, far more failures than success. I see no evidence that the odds of success are improved when engineers are placed in positions for which they are not naturally gifted.

SUMMARY
Just because an engineer is smart and good at getting things done does not mean that engineers should take over nearly all the functions of a business. Like everyone else, they have blind spots. By hiring a diverse set of people with different skill sets, you eliminate the blind spots and get people who are more naturally gifted in each particular job. Hiring a real strategist to run strategy is an asset because they can help focus engineers on getting the “right” things done.

FINAL THOUGHTS
Just as you wouldn’t want to have an auto mechanic cut your hair, I don’t think you’d want an auto mechanic defining how others should cut your hair. Yet, when I look at some job descriptions for strategists, it appears as if the job was defined by an engineer. The strategist position is defined as more of a project manager (engineering mindset) than as a strategic thinker (strategic mindset). If you leave out the natural giftedness of the strategist from the job description, you won’t get true strategy. You’re designing failure.

It's All About the Beans

THE STORY
Back in the first half of the 20^th Century, A.J. Bush decided to start a business. His first choice was to manufacture hosiery. However, a nearby canning company was trying to get rid of its old canning equipment at a price too good to pass up. So A.J. Bush went into the canning business.

A.J. Bush wasn’t very particular about what he canned. He canned just about every kind of vegetable produced by the farmers of Eastern Tennessee. The following generation kept up the tradition of canning whatever came along. They even experimented with more exotic items, like sauerkraut, dog food and spaghetti. If it could be eaten and it could be put in a can, then the Bush family probably canned it (or at least thought about canning it).

This strategy wasn’t working out too well for the Bush business. By the 1970 and 1980s, the company was getting into serious financial troubles.

As a result, in 1990 the Bush business began a serious and highly involved strategic planning process. After a few years of analysis and thinking, they came to make a number of difficult choices. One of those choices was to focus exclusively on canning beans.

These decisions turned the company around. Instead of remaining a troubled also-ran in the vegetable canning business, they are now a profitable market leader in beans.

In the first picture above, you can see me next to a cardboard cut-out of Jay Bush and his dog Duke, who promote Bush beans in television commercials, another part of their success.

THE PRINCIPLES
So what can we learn from this story? Several things…

1) Strategic Planning is Important

When I am asked what the value is of strategic planning, I often say that it can be the difference between having a thriving company and a bankrupt company. That was certainly the case for the Bush family business. Had they not embarked on a serious strategic planning process back in the 1990s, I doubt the company would be around today. As a result of that planning, they not only survived, but thrived.

What kind of value can you place on the difference between success and failure? It is so large, it is too big to calculate. People would pay almost any price to improve the likelihood of success. This is why it baffles me why so many today are claiming that strategic planning is of little, if any value.

Wouldn’t you rather be a successful winner than a bankrupt loser? How much is that worth to you? If strategic planning can improve the likelihood of preventing bankruptcy and ensuring success, shouldn’t you do it?

Part of the problem is that a lot of what is done today in the name of strategy is not tackling those tough issues which can make the difference between success and failure. During that thorough strategic planning process at Bush during the 1990s, they tackled a number of tough issues, like:

a)     Leadership: The Bush family knew they needed to up the game in leadership, so they changed the board structure to bring in seasoned outsiders to the board of directors for the first time. This was a tough decision for the family members who had to give up some control in order to improve the leadership.

b)     Management: To get the quality of management necessary to win, Bush made the hard choice to move management operations from the little town of Chestnut Hill, Tennessee to the larger city of Knoxville, Tennessee. The larger city made it easier to draw in higher quality managers. But it was tough for the family who liked it back in Chestnut Hill.

c)     Product Mix: Not only did the focus shift from canning any food to canning beans, it also shifted from canning food as ingredients to canning beans that were ready to serve from the can due already having the special sauce. This was very radical and at the time perhaps seen as very risky to put all the future into one type of product.

d)     Sales/Marketing: Once the product mix was established, a professional sales force and marketing program was put in place. This was a significant change from the status quo which they knew.

Compare this to what a lot of companies do today and call strategy:

a)     Set numerical goals (with no details on how to achieve them)

b)     Use metrics and systems to try to do the status quo faster and cheaper.

c)     Have a week-long golf outing surrounded by a few meetings so it can be written off on their taxes.

Great strategies tackle the tough issues. They seek the right trade-offs between options. They challenge the status quo. They move companies into uncomfortable new areas. THEY MAKE A DIFFERENCE. And that difference can mean success rather than failure.

2) Focus is Important

The second lesson from the Bush story is the value of focus. The move from an unfocused “can anything” to the focused “experts in beans” made all the difference to the fate of Bush.  Focus is important, because it allows a company to specialize. And specialization is what it takes to win in a crowded marketplace.

Les Wexner, the genius behind the Limited retail empire (which over the years included such stellar brands as The Limited, Victoria’s Secret, Abercrombie & Fitch, among others), would refer to this as “Best At.” He always wanted to know what his brands were “best at” and then would make sure that the brands were doing everything they could to excel at the area focused on to be best.

The consultants at McMillan Doolittle refer to it as the “EST” strategy. Where have you focused to become superlative? Is it to be the big-est, the cheap-est, the hot-est, the easy-est, the quick-est, and so on.

The idea is that once you determine your focus, you know where to place your bets. You know which trade-offs to make. You know which direction to push your business. You know where to win. And over time, your specialized trade-offs will give you the expertise to excel at your point of focus, and you will win.

Bush was never going to win as an also-ran in canning all sorts of food. But by focusing on beans, it found a place where it could excel through focus, outdo the marketplace and win.

3) Positioning is Important

Focus is not only important to making a difference internally. It is also important to your customers. An internal focus allows you to create an externally winning position in the minds of your customers. By having an internal focus on beans at Bush, the company now had a compelling position to tell the consumers: Bush = The Best in Beans. Consumers were willing to seek out the Bush brand and pay a brand premium because they knew that they were getting the best in beans.

We’ve talked so many times in this blog about the value of positioning. Great positions lead to great success. But if you have not built an internal strategy focused on delivering something special, you have nothing solid to build a position around.

If you cannot deliver superiority on the key point of your position, then your position is nothing but a lie. And consumers will eventually figure out if your position is real or a lie.

That is why the integrated planning process is needed. The internal business model and the external marketing message need to be in sync. And this only comes through serious, company-wide planning. Positioning does not just belong to the CMO. It needs to belong to everyone.

SUMMARY
Good strategic planning is not just some numbers game played in the fall to give an excuse for an off-site business vacation. Good strategic planning tackles the tough topics of focus, positioning and the implications of these topics on the status quo. If done properly, it can be the difference between success and failure. Therefore, if you prefer success over failure, put a high value on doing serious strategic planning.

FINAL THOUGHTS
When a company is operating smoothly, it is difficult to see the need for strategy. It is easy to forget that it was earlier tough strategic decisions which created today’s smooth operations. And if you want smooth operations in the future, you need to make more tough strategic decisions today.

Strategic Planning Analogy #454: Strategy Cut-Outs

THE STORY
A couple of years ago, I was at a tourist location while on vacation.  There was a section of the area devoted to souvenir shops.  These shops had quite a variety of souvenirs to offer—everything from T-shirts to antiques.  Most of the items had something printed on them referring to the phenomenon which drew tourists to the location in the first place.

But there was one store which stood out.  It was selling life-sized photographs of famous celebrities, cut and mounted on wood so that you could have them stand next to you.  In particular, the store was pushing life-size cut-outs of Justin Bieber, the hottest celebrity of that moment.

I thought it might be interesting to have one of these in my home (until I saw how expensive they were). 

But it got me thinking.  What if I had one of these Justin Bieber cut-outs in my house and suddenly the real Justin Bieber showed up?  The natural reaction would be to ignore the cut-out and pay attention to the real person.  All that money paid for the cut-out would have been a waste, because it has very little value when you have access to the real thing.

And if you saw someone ignore the real Justin Bieber to spend time with the cut-out photograph, you’d think they were a little bit crazy.

THE ANALOGY
Sometimes, I think strategic planners can get a little crazy, like someone who would rather hang out with a photograph of Justin Bieber than the real person.

Strategic plans are an attempt to represent what is going on in the environment and how we would like to change it for our company’s benefit.  They are not reality themselves, but merely a representation of that reality (and the future reality we desire).  They are a “cut-out” rather than the real thing. 

But, as strategist, we tend to love those planning documents.  There can be great joy in getting such a document completed.  And sometimes strategists can get all caught up with all their other documents, and data, and graphs, and spreadsheets.  There’s just so much of it to occupy our time that there is no need to ever leave the office.

But reality takes place outside the office out in the marketplace.  We can go out there and see our real Justin Bieber (the world we compete in) any time we want.  But instead, we seem content to embrace our hand-made cut-out version of Justin Bieber and never leave the office.

Yeah, the cut-out is nice, but isn’t visiting the real thing occasionally even nicer?

 

THE PRINCIPLE
The principle here is that great strategic planning goes beyond dreaming up great theories in offices or in printing up thick strategy books.  The best strategies are most in tune with the marketplace.  Therefore, it is helpful if the planning process spends time interacting with the marketplace where the strategy gets played out.

1) Get Out in the Field

When was the last time your strategists went on a sales call with your sales team, or spent time listening in at the call center, or visited (or worked at) the factory, or spent time in direct contact with your customers?  These are the types of places where your strategy either succeeds or fails.  The better you understand them, the better you can prepare to win there.

At most of the retail companies where I have worked, I have insisted that whenever my team traveled on business, they should carve out extra time to get out and experience the local marketplace.  I told them to visit our stores, the stores of competition and even stores that had nothing to do with us.  After all, you never know where you will learn something new that will be useful in strategy.

I was appalled one time when a retailer I worked for opened up the first prototype for a new retail concept.  The top executives got on the corporate jet and then drove directly to the store.  They cut the ribbon for the grand opening and then went directly back home.  No time was spent observing or talking to customers.  No time was spent visiting the competition.  What a missed opportunity to learn.

When H. Ross Perot was placed on the board of directors for General Motors, one of the first things he did was go to a GM dealership to buy a car.  He wanted to experience what consumers experienced when buying a car.  He also wanted to own and drive a GM car to better understand the product.  Later, Perot was shocked to find out that many of the other board members no longer bought cars—they were given to them by the company.  And most of them no longer drove cars—they had drivers.  And at least one no longer even had a valid driver’s license.  How do you build strategies for the marketplace when you are so out of touch with the marketplace?

Granted, you cannot go everywhere and see everything.  But you should at least spend some time experiencing the world of the line employees and your customers.  This gives you some “real life” context for evaluating strategic options.  And just as you can learn more spending time with the real Justin Bieber than you can with a photo cut-out of Justin Bieber, you can learn things out in the field that would never show up just looking at numbers and documents in your office.

And to supplement personal experience, include more input from those who live out in the field.  Invite input from line employees, customers, suppliers and distributors.  With all the social media tools out there, it has never been easier to include all the voices of the marketplace in your planning process.  Not only will this allow you to learn more for strategy design, but it will create greater buy-in and cooperation from the field during strategy execution (because they were part of the design process).

2) We’re Not in the Publishing Business

A lot of strategists get upset when all of their strategy documents and presentations get ignored.  After the strategy meetings, everything given to the leaders gets put on their shelf, never to be touched again.

Why does this happen?  To a lot of the leaders, all that material is like the photo cut-out of Justin Bieber—not quite fully real to their regular day job.   After the planning meeting, they have to go back to living life out in the field with the real Justin Bieber.  And given the choice of spending time with the cut-out or the real thing, they naturally opt for the real thing. 

Remember, a company’s strategy is not what is put in a book, but is the result of all the daily decisions made throughout the organization.  If the written strategy is not made real at the point where all the decisions are made, then it is not the real strategy.

Strategists are not publishers.  Our end products are not books, Powerpoint decks, budgets and so on.  Our end product is a transformed company which is moving in the direction of the vision.  Therefore, to succeed, we need to make our strategy relevant in the minds of the people making the daily decisions.  To do that, the strategy needs to get translated into the context of the reality of where decisions are made.

To do that, strategists need to spend time at the beginning out in the field so as to understand that

context.  In addition, strategists need to spend time out in the field after the strategy is crafted, helping the decision-makers see how to relate the strategy to their daily decisions.  And that cannot be done by just hanging around your office.

SUMMARY
Successful strategies are the ones which impact what happens out in the marketplace.  That impact is increased when a) the strategy is built upon the knowledge of the realities of the marketplace; and b) those who are making the daily decisions out in the marketplace understand how the strategy is relevant to the choices they make.  This requires that strategist do more than just produce books, spreadsheets and Powerpoint decks.  They need to spend time out in the reality of the marketplace.

FINAL THOUGHTS
All of this is not to imply that analytics, budgets, spreadsheets, presentations, strategy books and vision statements are a waste of time.  No, they help to quantify and communicate the core strategy.  They also help to flesh out strategic insights and concepts.  But unless one has a deeper, more intimate knowledge of the reality of the marketplace—something that cannot be found just studying sterile numbers—you will not fully comprehend the context and relevancy of that information.

It is like designing a house without understanding the terrain the house is to be built on.  It may look great on the blueprint, but it cannot become a reality because it is inappropriate for the terrain.  First, go out to the site and learn the terrain, so that the house you design on the blueprint can actually be built and be the right structure for that location.

Strategic Planning Analogy #437: Eliminate Stop Signs

THE STORY
Shortly after receiving my driver’s license, I caused an accident. As a result, I had to go to traffic court.

In the case prior to mine, a lady was accused of refusing to obey a stop sign. She pleaded not guilty. Her defense was that she indeed made a quick stop at the stop sign before proceeding.

The court then pointed out that immediately after her “stop”, she drove into oncoming traffic and caused an accident.

The judge asked her if she looked both ways to see if it was clear before proceeding from the stop. She said no. She just stopped as the sign required and immediately drove ahead, never taking the time to see if it was okay to proceed.

Although she technically stopped, the judge found her guilty.

THE ANALOGY
We live in a fast-paced world. Like the lady in traffic court, we don’t want to waste a lot of time stopping. We want to just rush down the road. As a result, stop signs do not always get the respect they deserve.

Many executives see strategic planning as similar to those stop signs. Strategists are the people seen as always saying “Stop!” They’re always talking about being at a strategic crossroad, where we need to stop and determine which path to take. Either that, or strategists are seen as the ones who want to slow down the day-to-day decisions by forcing people to take the time to first examine the long-term implications of that decision.

Out of courtesy, these executives may momentarily give a token nod to strategy. But like the lady in traffic court, they immediately resume their fast pace. And because they did not take the time to carefully examine the ramifications of their actions, these executives cause a corporate accident.

As long as strategists are viewed as stop signs, they will not get the respect they deserve…and those accidents will occur. To gain respect, and reduce the accidents, I suggest that strategists reposition themselves as expressway builders—the ones helping you to avoid stop signs.

THE PRINCIPLE
The principle here has to do with speed. Companies want to move quickly. If you are viewed as something which slows a company down, then you are not seen favorably. However, if you viewed as one who helps the company move faster, then your image and stature improves.

Bad Assumptions About Strategic Planning
Therefore, if strategists want to make a major impact on a corporation, it helps if they are viewed as an area which helps companies move faster. However, the current image of strategy is often the opposite. The negative rap against strategy in this area usually goes something like this:

1) Building long-term strategies takes a lot of time.

2) The world is moving too fast and too unpredictably.

3) As a result of rapid change, long term plans are almost immediately obsolete (so you have to waste a lot of time constantly updating them).

4) As a result of unpredictability, you have to go with your gut and seize the opportunity of the moment. If you waste a lot of time in strategic analysis, you’ll miss out on that short window of opportunity.

5) Therefore, strategy should not be taken very seriously. It’s a bad stop sign that you want to drive through.

Good Assumptions About Strategic Planning
However, I believe this point of view can be rejected and replaced by one where strategists are seen as one’s allies in maintaining speed. The replacement line of reasoning would go something like this.

1) The world is moving fast and unpredictably.

2) The faster and more unpredictable the world is, the more often one has to adjust. The number of decisions to be made increases dramatically. Every street you drive by is potentially an opportunity to change course in a world of rapid change.

3) In the absence of context, thousands of people making thousands of rapid decisions leads to chaos. Precious time is wasted because the company is not unified and moving together down the same path.

4) Without a map, every road looks about the same. It takes longer to decide which road to take at every intersection if you have no guidance about which roads are better.

5) Strategic planning can fix all these problems by providing the context and the map. All of those decisions are easier and faster to make when you have a strategic context. The context help people focus on what is most important. They help a company understand what their winning formula is. This makes all those decisions easier. All you have to do is move in the direction which reinforces the context.

6) With a roadmap to the future, every path is not treated equally. There is a preferred path. You only need to deviate on rare occasions. If you use strategic planning to debate the whole path upfront once, you save a lot of wasted time debating what to do at every single intersection.

7) Without the context and the map, you are always reacting to what is going on around you. You are a follower, not a leader. Followers have to keep adjusting to all the changes in the rules set by the leaders. By contrast, if you are the leader setting the rules, then you are less subjected to the world around you. Instead of wasting time adjusting to the world, the world is wasting time trying to adjust to you.

As Peter Drucker put it, “The best way to predict the future is to create the future.” Building a strategy to create the future allows you to move forward quickly because you don’t waste as much time predicting or reacting.

Example: Apple
Apple has moved very quickly in a very fast paced part of the economy. My contention is that their success in moving quickly has a lot to do with their having a solid context and roadmap.

Everyone at Apple understands the context. They are to develop cool, elegant, intuitive, seamless systems in the consumer electronics space. By understanding that context, decision making could be made easier and faster. Whenever a decision needed to be made, the answer was to move in the direction which made things cooler, more elegant, more intuitive, or more seamless. And these decisions applied to the whole system—the hardware, the software, the content, the partners, the selling environment.

This context became the non-negotiable winning position for Apple. The time for debate was over. Now all the energy could be focused on moving forward to bring it alive.

The roadmap was also fairly clear. The idea was to build closed systems around aspects of a cool lifestyle. As time passed, the complexity of those systems would increase, but the intuitive elegance would remain. First music, then mobile, then pads, then clouds. Ever more useful, ever more portable, ever more powerful.

By knowing the roadmap, Apple could focus on great execution (instead of endless arguing on what to execute). They were able to take the lead and set the rules everyone else had to follow. By making the rules, they were not victims of the rules. They could move quickly by acting, rather than reacting.

Building Expressways
If strategic planners help companies develop their context and roadmaps, then they are actually eliminating stop signs. The road filled with stop signs is replaced by an expressway which has no stop signs. All of those little time-consuming decisions at each intersection can be sped by, because you already have the big decisions made (through strategic planning). The big decisions help to quickly point out the way to resolve the little decisions (go in the direction of the big decision).

If you can convince management that doing strategic planning actually saves time by getting you off the back roads an onto an expressway, then you will be able to positively influence a company and help steer them away from strategic accidents.

SUMMARY
In a rapidly changing world, strategic planning does not become obsolete. Instead, it becomes even more critical. It provides the context and the roadmap, so that you can more easily and more quickly determine which path to take amongst all that change.

FINAL THOUGHTS
Are you focusing your efforts on things which make it easier to deal with change or harder to deal with change? The answer to this question will help determine your status and power within the organization.

Strategic Planning Analogy #433: Constructive Energy

THE STORY
Although construction and destruction are opposite results, they can often come from the same source. For example, a nuclear power plant uses the same basic principles of nuclear physics as a nuclear bomb. Yet, the output from a nuclear power plant is constructive while the output from a nuclear bomb is destructive. Same source, but radically different outcomes.

In the same way an axe provides radically different results, depending upon how it is used. In the hands of a lumberjack, an axe is very constructive. In the hands of an axe murderer, the results are very destructive.

So is the power of the axe or of nuclear reactions good or bad? Is it a force for construction or destruction? In reality, it is just a source of power; an input. The outcome depends on how the power is controlled.

THE ANALOGY
Another source of power, besides axes and nuclear reactions, is management. Over the years, I have seen examples of management doing things which are very positive and constructive to a business. I have also seen management do things which are very destructive to a business.

Sometimes, we are quick to place a value on the input based solely upon the outcome. We will say that all the managers who provided constructive outcomes were “good” managers and all of the managers who provided destructive outcomes were “bad” managers.

Now in some cases, this is true. There are some really good and really bad managers out there. But in general, I’d say that management tends to follow a bell-shaped curve, with most of the management in the middle rather than at the extremes of good or evil. I think this is particularly true at mid-management levels. Therefore, if we want good outcomes from the core of our business, we need to consider the lesson of the axe and nuclear reactions.

An axe is not inherently good or bad. The value of the axe is determined by the one using it (lumberjack or axe murderer). In the same way, most managers are not automatically always either extremely good or extremely bad. The outcome, good or bad, is highly influenced by how the company uses its management.

In a toxic business culture, it is difficult for any manager to be very constructive. Conversely, in a healthy culture, it is far more difficult for a manager to be destructive. So if you want good outcomes, it takes more than just finding good managers. You also need to place those managers in an environment where good outcomes are more likely to occur.

Just as the holder of the axe has to take some of the responsibility for the outcome of the axe, a business has to take some of the responsibility for the outcome of its management

Therefore, we should not automatically and hastily replace a manager just because the results were bad. Unless the environment changes, the next manager may be no more successful in his/her results than the last one. For example, I worked with a company division that went through about 4 presidents in a nine year period. Yet, despite frequent changes in management, the results continued on the essentially the same poor path. The bad corporate environment was more influential on results than the character of the leader.

So, before making a quick value judgment on a manager, consider the way in which the manager was used by the business. Perhaps the best way to improve results is not by replacing the manager, but by replacing the environment the manager is put in. And, as we will see in this blog, an increased emphasis on strategic planning can be an easy and effective way to improve that environment and allow your management to be more constructive in its outputs.

THE PRINCIPLE
One of the biggest problems facing the strategic planning profession is the growing image of Strategic Planning as being irrelevant. The logic of those who believe in the irrelevance of strategic planning usually goes something like this:

a) The world is moving too fast; constant change makes it impossible to effectively plan the future.

b) Those annual planning meetings produce documents that are ignored and go on the shelf, and have no relevance to everyday decisions.

c)If we adequately empower the people on the front lines, they can get the job done without needing the advice of strategists stuck in the ivory tower away from where the action is.

As the image of strategic planning declines, so does the number of strategic planning jobs inside businesses. Just go and look at all those job boards on the internet. Titles like “VP of Strategic Planning” are disappearing. If you click on one of the drop lists of job types on these sites, strategy usually isn’t even on the list.

If you, like me, still believe in the benefits of strategic planning, then this is not good news. In response, one can try to change these people’s minds by attacking those three points above (and I think good rebuttals can be made). However, that may not be the best approach.

My suggestion is to counterattack on a different front. One such counterattack is to say that strategic planning makes all of those empowered people more effective. In other words, a small investment in strategic planning can increase the quality of the output of management, leading to far better financial results. Like the axe and the nuclear reactions, you can turn management output to greater good because you place them in a better environment.

Most Managers Are Ineffective
This can be seen in a study by academics Heike Bruch and the late Sumantra Ghoshal as reported by CBS Moneywatch. Bruch and Ghoshal defined managerial success as “decisive, purposeful action.” For them, good managerial output is action which results in leading the company forward.

What they discovered was that only about 10 percent of the managers they studied created decisive, purposeful action. In other words, about 90% of managers are not effective.

The rest of the management was classified as follows:

a) Approximately 40% energetic, but not focused (effort wasted);
b) Approximately 30% had low energy, little focus and tended to procrastinate; and
c) Approximately 10% were focused, but not very energetic.

Businesses should not be happy when approximately 90% of their managers are ineffective. This should be a call for change.

Strategic Planning Can Create Effectiveness
The largest segment of ineffective managers was those who had the energy, but not the proper direction (no focus). These are like the people who have the nuclear energy but make destructive bombs rather than constructive electricity. They have the capacity and the desire to do good work, but the effort is dissipated due to lack of proper focus.

Well, guess what is the best way to give managers focus? It is through strategic planning. Strategic planning provides focus and direction. It tells people what the goal is—where the vision lies and how to get there. Strategic planners can not only help set that focus, but help communicate that focus to all the managers and show them how their role fits into that focus.

If a company makes a relatively small investment in strategic planning, they can turn that 40% who are energetic and not focused into productive, focused managers. Suddenly, a typical company goes from having only about 10% of their managers productive to having about half of their managers productive.

What other similar-sized investment could a company make that could have such a dramatic increase in management effectiveness? I can’t think of any. It’s a no-brainer. Invest in strategic planning because it turns unproductive managers into productive managers.

This is an outstanding return on investment. And for that alone you can justify having strategic planners in the organization.

SUMMARY
Success does not come from merely having powerful tools. Powerful tools can be both constructive or destructive, depending upon how they are used. In the same way, managers can be effective or ineffective, depending upon whether or not the company provides them the proper focus. Strategic planning can provide such a focus. Therefore, you can justify an investment in strategic planning merely by looking at its ability to turn ineffective management into effective management.

FINAL THOUGHTS
You can be the best strategist in the world, but if nobody wants it, then you cannot use your gift for good. Therefore, we need to continually defend the value of the discipline.

Strategic Planning Analogy #414: Which Comes First—Goals or Strategies?

THE STORY
Let’s assume that you want to race in the Olympics. Let’s further assume that they way you qualify for the Olympics is by agreeing (in writing) to guarantee achieving a specific time when you race (quick enough to win committee approval). And, if you fail to achieve that time, you will owe the Olympic Committee a large sum of money. Then, to make it even more interesting, the Olympic Committee does not tell you which type of race you will be competing in until after you commit to a specific time.

When making the time commitment, you do not know if the race is a short sprint or a long marathon. You don’t know if the race involves running, speed skating, swimming or bobsleds. Perhaps there are hurdles or other obstacles. Perhaps not.

It seems to me that committing to a race time before you knew what the race was would be an act of insanity. It’s a good thing the Olympics aren’t run that way.

THE ANALOGY
Although the Olympics are not run that way, it seems that many businesses are run that way. When starting their strategic planning process, these companies begin with goal-setting. The goal could be a level of sales, or profits, or a percent return on investment, or a stock price. Setting these goals is a lot like setting the goal of the time you want to achieve in a race.

Then these companies get management to commit to hitting these goals, and tie their bonuses to achieving these goals.

It isn’t until all this is completed that these companies start looking for a strategy which can achieve that commitment. To me, choosing the strategy after committing to a goal is a lot like being told what race you are going to run after committing to a race time. It is often a process of foolhardiness. And, unfortunately, I think a lot of companies are on this foolish path.

THE PRINCIPLE
The principle here is that long-term success is more likely to occur if goals are set after conceiving the strategy rather than before. In this blog we will look at some of the negative consequences of putting goals first. In the next blog we will look at some potential solutions to this problem.

When a company puts goal-setting ahead of strategy-forming they increase the likelihood of six bad outcomes.

Bad Outcome #1: The Wrong Goal is Set
Setting the goal before knowing what to do can lead to two types of improper goal setting. The first is choosing the wrong metrics. For example, at different stages of the lifecycle, different metrics may be more appropriate. Rapid sales growth targets may make more sense during the rapid growth phase but be inappropriate during the decline phase, when cost control may be a more appropriate metric. You cannot know what the most appropriate metric is until you understand the type of plan you are putting in place.

Even if the right metric is chosen, you might choose the wrong target level—too high or too low. How can you know what the appropriate target level is before you know what you are doing? Set it too low and you may miss opportunities (and reward too generously). Set it too high and you may encourage people to take on bad behavior (as we will see below).

Bad Outcome #2: The Wrong Actions Are Taken
People act based on how they are measured, so if you measure the wrong things, people will tend do the wrong things.

If the metric is inappropriate for the circumstances, it might force people to apply strategies consistent with the metric but wrong for the circumstance. For example, if a business has recently reached maturity but the goals are more appropriate for an earlier rapid growth stage, one might try to apply rapid growth strategies in order to try to reach the rapid growth goals. This could lead to investing in over capacity and money-losing sales strategies, in an attempt to try to achieve no-longer-realistic top line growth commitments.

Going back to the story, you might be best suited for running a marathon, but because you promised a quick race, you are forced to run a sprint. So instead of playing to your strengths—a place where you can win—you go with your weakness in a place where you will lose. Figure out the race you are most likely to win before committing to an outcome.

Bad Outcome #3: Undesirable Increase in Risks Are Taken
Many times, aggressive goals cannot be achieved by the core business. You end up with what is commonly called a “planning gap”—the difference between what the current strategy provides and what you want to achieve. The bigger the gap, the more one has to do to fill it. This can lead to taking on a lot more risks in order to fill the gap, such as diversifying further from one’s core or doing some hasty acquisitions.

We know most acquisitions fail, and if they are being done primarily to fill a gap rather than to fill a synergistic strategic need, the risk is even higher. In addition, so much focus could be placed on filling the gap that the eyes are taken off the core, increasing the risk of problems there as well.

Perhaps the only way to narrow the gap is to assume the best case scenario—everything has to go right. The best case scenario is rarely the most likely case scenario. As a result, your strategy takes on added risk for failure if you have to skew assumptions in order to make the strategy fit the goal.

Bad Outcome #4: Long-Term Prospects Are Destroyed
When the numbers come first, people’s priority is to try to hit those numbers—whichever way they can. There are lots of ways to hit a number, and a lot of those ways are destructive in the long run. To hit aggressive numbers in a short time span, one usually has to make trade-offs which hurt the long run. For example, to hit near term profits, future-oriented activities (like R&D or innovation) may get cut too much. To hit aggressive near-term sales, one may create costly promotions which merely steal away sales from the future. To hit near-term return on capital numbers, one may underinvest in long-term capital projects.

One of the first cases I had in business school was about a manager who made his numbers by cutting out all maintenance costs. Eventually, everything broke down and the long term costs of repair were much higher than those maintenance costs which were cut. This is an important lesson which can be lost if aggressive goals are put in place which can only be met by making bad trade-offs with the future.

A lot of Warren Buffet’s success is due to taking the long view. He knows that he will usually get more out of an investment if he manages it for the long term rather than a quick payback. But if goals come first, one can start managing for what’s best for the goals rather than managing for what’s best for the business. That usually means trouble for the long-term prospects.

Bad Outcome #5: Avoidable Failures Are Perpetuated
If you look at a business purely objectively, you might come to the conclusion that it should be shut down or sold. However, if you start with an inappropriate goal, you may be hesitant to retreat from the business, because you feel you need every bit of business possible in order to try to reach the target. For example, I worked with a company that had a business line which they probably should have gotten out of. They didn’t because they told me they “needed the sales” (even though they were unprofitable sales) in order to hit their sales growth targets. I had suggested a more profitable approach, but it produced fewer sales, so it was rejected. Instead, the failed approach was perpetuated.

If people commit to unrealistic goals, then they will not have a realistic way to achieve it. This inevitably leads to not achieving the goal. Disappointment and failure are the most likely result. All the stakeholders get angry. These “guaranteed” failures and disappointments could have been avoided if bad businesses were cut out sooner, and promises were made which had a high likelihood of success, because they were first grounded in doing the right things. If you choose the right strategy first, then you know which goals to promise, and then you can meet them.

Bad Outcome #6: New, Better Options Can Be Missed
If you don’t first have a strategy to help you set your goal, then often times the only thing you have to base the goal on is the past. And as we all know in strategy, the past is often not the best guide for what to do in the future. This backwards orientation (extrapolation of the past plus stretch), may keep us mentally oriented towards modified status quo strategies rather than new breakthrough strategies.

Breakthrough strategies typically come from starting with a clean slate, not extrapolations from the past (which at best, only gives you incrementalism).

In fact, by setting goals prior to setting strategy, management is in essence telling people that the old strategy is good enough. After all, how can you realistically set a future goal before considering strategic change unless you believe no meaningful change is necessary?

SUMMARY
Many companies use a strategic process where goals are set before the strategy is chosen. This approach increases the likelihood of bad results and missed opportunities. Committing to a race time before you know what the race is sounds backwards. The same is true of setting numeric performance goals before you know what strategy will be performed. In the next blog we will look at ways to minimize this problem.

FINAL THOUGHTS
Setting the goals first sounds like wishful thinking. Last time I checked, you don’t automatically get what you wish for. I could wish I was taller or younger, but it isn’t going to happen. No, we should start first by optimizing what is in the realm of the possible and set our goals from there.

Strategic Planning Analogy #392: Sunday Best, Part 1

THE STORY
Back when I was a child, I had two types of clothes in my closet. There were the “Sunday Best” clothes, which were only worn to church on Sunday, and the “Everyday” clothes, which were worn the rest of the time.

I didn’t care much for the Sunday Best clothes. I had to button the shirt tight around my neck so that I could put on an uncomfortable tie (something no young boy wants to do). In addition, since I wore the clothes infrequently, they didn’t get replaced as often. That meant that as I grew, the clothes would become ill-fitting and uncomfortable. The shoes were stiff and hard. And then I had to be extra careful not to get the Sunday Best clothes dirty or messed up.

I much preferred the everyday clothes. They fit well and were comfortable. And I didn’t have to worry about them.

THE ANALOGY
Just as the clothes in my closet were separated into two categories, businesses often separate tasks into two categories—Everyday Tasks and Strategic Tasks. Everyday tasks are like the everyday clothes I wore as a child. These are the tasks you do most frequently and where you feel most comfortable. They fit well with your area of expertise. It’s the place you feel most comfortable.

Strategic Tasks, on the other hand, are more like my Sunday Best clothes. These tasks are done less frequently. The Strategic Tasks feel less comfortable because they tend to stretch beyond your comfort zone or area of expertise. Strategic Tasks tend to involve more cross-functional teams where people feel less in charge what they are doing (another source of discomfort). And strategic tasks seem to have less impact on how you are judged for raises and bonuses—so uncomfortable work seems to have little reward.

In addition, there is usually more interference and supervision from corporate headquarters on strategic tasks, which feels choking like that tie I wore to church. This also means you have to be more careful about not messing up, because Corporate is watching. And some of the strategic forms they want you to fill out feel as hard and stiff as those Sunday Best shoes.

It is no wonder, then, why so many people in a company dread working on strategic tasks. They’d much rather work on everyday tasks.

THE PRINCIPLE
The principle here is that if you want effective strategic activity in your company, you need to avoid creating such a large separation between everyday tasks and strategic tasks. As we will see later, this large separation of how we approach these tasks leads to both sub-optimal strategic work and sub-optimal everyday work.

Instead, strategic tasks need to feel more like everyday tasks and everyday tasks need to become more strategic. You shouldn’t feel like you have to change clothes in order to switch from one to the other. It should blend together more.

I will try to illustrate this principle by looking at two tasks which tend to get separated. The goal of finding higher levels of growth beyond historical organic growth tends to be placed in the “Strategic Tasks” category. The goal of lowering expenses tends to be placed in the “Everyday Tasks” category. By labeling them this way and treating them differently in the organization, we sub-optimize. Growth is less than it could be and costs are higher than they could be, because this separation gets in the way of effectiveness. In today’s blog, we will look at the growth issue. In the next blog, we will look at the cost issue.

Growth Ignores the Core
Studies have shown that successful growth tends to be more difficult the further one moves away from one’s core strengths. Yet, when we place the growth mandate outside the realm of everyday tasks, we are almost by definition forcing the task further away from the core.

It tends to work like this. People in the everyday world of the core businesses don’t want all that uncomfortable outside process (called strategy) to get in the way of doing their business. So they wall off their organic business growth from that strategic uncomfortableness and say that this kind of growth is “everyday” work (and should be treated as any other everyday task). That way, they can be left more alone to handle it as they please.

I’ve had several experiences in my career where the operators have done everything possible to try to block my ability to add a more strategic approach to looking at their business growth. They claim that they are the “experts” and that my “interference” into their everyday work will only make matters worse. In their mind “strategic tasks” have no place in their “everyday” work world.

As a result of issues like these, the only uncontested space where the strategic work can usually take place is outside the everyday. The strategic focus for growth then looks mostly at diversifying. It can be a diversification into new products, new customer segments, new channels of distribution, new businesses, or some combination of the above. These are areas where the company is more likely to fail, because their expertise in assessing the risks and/or implementing the diversification may be lacking. Again, as I said earlier, the further you get from the core, the more problematic things usually become.

Worse yet, since “strategic” tasks tend to be less linked to compensation, you may not be getting people’s best effort on these projects. You may only get the time left over after the “everyday” tasks are first completed. There may even be attempts to sabotage some of this new growth if it is seen as a threat to someone’s core business (and the bonuses it produces) or a threat to their position of power in the current structure. Less than full dedication in an area with less than full expertise does not sound like a recipe to optimize your growth options.

The Handoff from Strategy to Everyday
And then comes the problem of implementation. Eventually all of this activity to create new growth has to become a new part of the core business. In other words, it eventually has to be a new form of everyday work. If all of the process to create the diversification was done outside of the everyday, then there eventually needs to be a time of hand-off when the work is transferred from being a “strategic” task to being an “everyday” task.

The more separation there is between these tasks, the more difficult the handoff will be. If the eventual operators of the business (the one’s charged with everyday work) are mostly left out of the loop when the business creation occurs (strategy work), they may not feel as bound to the strategic emphasis behind the startup. They could destroy all that initial effort by taking the handoff in the wrong direction.

I have personally seen this happen over and over and over again. Bad handoffs are virtually a given if the two groups only interact at the time of the handoff. Think about acquisitions (a key way to get into diversification). Most acquisitions fail. And a primary source of that failure is a bad handoff. All those great synergies and growth never happen because the integration of the acquisition into an everyday part of the company fails. The transition goes too slow, not enough cuts are made, and not enough integration occurs.

Why such a bad handoff? It is because those doing the acquiring are rarely the same people who end up running the acquisition (because they are seen as different types of tasks). The separation of tasks hurt the handoff. When you look at companies which are more successful at acquisitions, you tend to see more blending of the tasks, with the everyday people getting input into the process earlier and the strategy people sticking around later. It is shared work, not segregated work.

Making Core Growth Strategic
By contrast to task separation, consider what would happen if the walls were taken down protecting the core businesses from a more strategic approach. You could combine the expert in the area with a fresh set of strategic eyes. Innovative approaches could arise that the everyday person wouldn’t have otherwise seen, because that person may be too close to the trees to see the whole forest. Bad ideas wouldn’t get very far, because the everyday expert would provide a reality check.

Because this type of approach to growth is closer to where people are compensated, one is likely to get more intense effort. And because it is closer to the core, it is more likely to succeed. And because the business is more comfortable here, they are probably going to do a better job of implementing what it takes to create the new growth near the core.

SUMMARY
Companies tend to separate tasks into two piles—the everyday and the strategic. Then each pile is treated differently. By doing so, the everyday becomes less strategic and the strategic becomes less relevant to the everyday. And this is a mistake. To get more value out of each task, the areas need to be better integrated.

FINAL THOUGHTS
Strategy isn’t something that happens way out there away from the everyday. Remember that who you are is just a sum of what you do. Your true position is not what was written on an easel at an off-site planning meeting. No, your true position is what the customers think of you, and most of that thinking comes based on their experience with your brand and what you do. Great strategy doesn’t separate the everyday and the strategic. It realizes that the two need to be greatly intertwined.

Strategic Planning Analogy #386: Embracing Maturity

THE STORY
I enjoy talking to new first-time parents about their small children. The new parents truly love their little baby and think parenting them is such a wonderful thing.

Then they will mention some little parenting problem they are having. I warn them that this little problem is nothing compared to all the problems they will face when that child becomes a teenager.

Many of those who have had experience or knowledge about parenting teenagers have half-jokingly mentioned to me a desire to hand off their children when they become teenagers and pick them back up when they reach their twenties. Of course, the problem would be finding someone to hand them off to during that period.

THE ANALOGY
Being the parent of a cute little baby can seem like such a wonderful, fulfilling experience. Being the parent of a teenager, however, can often seem like torture—something to be avoided if possible. Unfortunately, those cute little babies eventually grow up into those frustrating teenagers. You can’t just stop being a parent when the child is no longer a cute little baby.

A similar situation appears to happen with many strategic planners. In general, strategic planning for brand new baby businesses can be seen as wonderful and fulfilling. You get to set the direction and positioning from scratch. With all that potential growth in front of it, there are lots of fun strategic options to consider.

However, when a business reaches maturity, strategic planning can seem more frustrating. Positions are already set and difficult to change. The fun of growth has been replaced by the pain of intense competition. Rather than talking about great strategic options, the discussion moves to cutting costs. In business maturity, it appears as if strategy is less influential on outcomes (sort of like parenting a teenager).

Like those parents, many strategists would be happy to just deal with the baby businesses and hand off those mature businesses to someone else. But guess what? Most industries and most businesses in the world are relatively mature. That’s where most of the action is. If strategists want to be relevant, then they had better get excited about building strategies for mature businesses.

THE PRINCIPLE
It bothers me that the discipline of strategic planning is out of favor in so many areas of business. Its influence has diminished significantly. There are many reasons for this phenomenon. I believe that one of the many reasons why strategic planning is seen as irrelevant is because the discipline tends to be pre-occupied with early stage businesses. Little focus from strategic planning thought leaders is given to strategic planning in the mature stage of a business. Therefore, it is no wonder that mature businesses see little value to intense strategic planning. And since most businesses are mature, that makes strategic planning appear irrelevant in most places.

One way for strategic planning is to regain its stature is by making it appear more indispensible in the way mature businesses are run. In this blog, we will look at four ways to do this.

1. Reclaim Productivity as a Strategic Agenda
As I have mentioned many times before, I believe that there are three components to effective strategic planning;

a) Positioning – A reason for consumers to prefer you.

b) Pursuit – Aggressively achieving as many ways to exploit that position as possible (top line orientation)

c) Productivity – Making the most money off the areas where you pursue (bottom line orientation).

Although all three are important at all phases of a business lifecycle, productivity tends to be the area requiring the most attention during the mature phase. Therefore, for strategic planning to be relevant and essential during maturity, it needs to take ownership of the productivity agenda.


In many places, productivity is not even seen as a strategic activity (even among some strategic planners). Strategists aren’t even invited to the table when productivity is discussed. It is just seen as a cost cutting exercise, or at best, a budgeting exercise. Just tell people to cut 15% of costs from their budget and you are done.

In reality, productivity is very much a strategic issue. Not all cuts are created equal. Some cuts hurt your strategic position more than others. If strategic implications are not addressed during cost cutting, the wrong cuts can be made—cuts which can totally undermine a business.

For example, a few years back the consumer electronics retailer Circuit City wanted to increase productivity. They noticed that labor was one of their largest costs at store level. They also noticed that their most experienced sales people tended to be the most expensive sales people. Therefore, to increase productivity, Circuit City got rid of its most experienced sales people. It wasn’t too long thereafter that Circuit City declared bankruptcy. As it turns out, those experienced sales people were a critical component of the strategic success of Circuit City. Eliminating those people also eliminated the chance of strategic success.

Strategists need to be at the table to point out the strategic implications associated with various cost-cutting options (and perhaps provide cost-cutting options of their own). This isn’t an option. The destiny of the business is at stake.

2. Move the Discussion Away from Merely Cost-Cutting
Some of the best ways to increase productivity have nothing to do with cutting costs. Often the productivity problem is not how much you spend, but rather what you do. It is a more a question of effectiveness of process rather than efficiency of spending.

For example, I could be the most efficient Morse Code operator on the planet. However, that does not make me the most effective communicator on the planet. Almost nobody understands Morse Code anymore, so nobody will hear my Morse Code message, no matter how efficiently I use it. Rather than trying to make my Morse Code process more efficient, I need to switch to a more effective communication process, like Twitter, Facebook or Email.

If you only focus on cost-cutting, you may miss far more effective options for improving the bottom line via changes in process. Strategists can be an important source for discovering and championing alternative processes.

Strategists can also play a vital role in helping companies avoid new processes which negatively impact a strategy. Take outsourcing, as an example. It makes a lot more sense to change a process from in-house to outsource when the process is less critical to the overall strategy. By contrast, if you outsource a core competency, you may destroy your ability to control your destiny and destroy your competitive advantage.

3. Help People See Productivity as an Investment Opportunity
Productivity is ultimately about increasing profits. Sometimes, you can increase profits faster by investing rather than cutting. If the return on investment is high, investments make sense, even in the mature phase of a lifecycle. Strategists can play a key roll during maturity by discovering and championing those types of investment opportunities.

Strategists are already often a key part of investment decisions during the early phases of a lifecycle. Why not continue that roll into the mature phase?

4. Change M&A to M&A&D
M&A stands for Mergers & Acquisitions. These are activities which tend to do with building and growing a business. However, as a business reaches maturity, it makes sense to give more consideration to the strategies of shrinking and eliminating businesses. This would be the strategies of Divestiture.

Most companies do not take a proactive approach to divestitures as a strategy. Instead, it is seen as the option of last resort—to be used only when backed into a corner with no other option. The thought of divesting while a company is still doing well is often never considered. Yet, the most profitable time to divest may be when the company is still doing well.

Look at the chart below. Outsiders often tend to overestimate the value when a company is just reaching maturity. They may mistakenly see it as still in the growth phase or see a longer mature horizon than you do. Conversely, once there is no longer any doubt that a company is in decline, the potential pool of people to sell to shrinks dramatically. The “bottom-feeders” who go after distressed companies tend to be very cheap and pay very little. As a result, in decline, others tend to underestimate your value. As a result, divesting early can be a great strategic option. We talked about this more in earlier blogs (here & here).


Therefore, divestitures can be just as strategic as acquisitions (read more here). And just as strategists are often a part of the acquisition discussion, they should be a part of the divestiture discussion. And this is more likely to happen if you change M&A to M&A&D—Mergers & Acquisitions & Divestitures.

SUMMARY
One way to improve the stature of strategic planning in companies is by making strategic planning appear more vital in the mature phase of the life cycle. This can be done by:

1. Reclaiming Productivity as a Strategic Agenda
2. Moving the Maturity Discussion Away from Merely Cost-Cutting
3. Helping People See Productivity as an Investment Opportunity
4. Changing M&A to M&A&D

FINAL THOUGHTS
There’s an old poem which goes something like this:

“The problem with kittens is that,
They eventually grow up to be cats.”

We need to move beyond a focus on cute kittens and embrace the reality of mature cats.

Strategic Planning Analogy #382: Stop the Suspense

THE STORY
When I think of the word “suspense” I usually think of old Alfred Hitchcock movies or Stephen King movies/novels. These are people who entertain us by captivating our minds with the fear of the unknown. It’s the type of scary feeling which we enjoy.

What “suspense” does not bring to mind is accounting. Yet there is an accounting concept called suspense accounts. Suspense accounts are used as a temporary placeholder when you do not know the proper place for a journal entry. For example, let’s say your company receive some money, but you haven’t yet figured out why. You would debit cash and temporarily credit a suspense account until you know where the real credit would go.

Another example is using a suspense account to temporarily balance your balance sheet if it is out of balance and you do not know why.

Come to think of it, suspense accounts are also about experiencing the unknown, just like scary suspense movies. Unfortunately, this is not the type of scary feeling we enjoy. I’d much rather have a scary movie than a scary set of accounting books any day.

THE ANALOGY
Although we may enjoy surprises and plot twists in our entertainment, most of us try to avoid that in our business performance. Investors (for both Debt and Equity) love stability and predictability. Too many surprises scare them (too much suspense). That’s why stable and predictable companies can usually borrow at a lower rate and get find more people to buy their stock at a higher price.

In addition, most employees don’t like too many surprises about their job stability. Therefore, by creating a stable environment, you may also be better able to attract and keep great employees

Strategic Plans can be a useful tool in taking a lot of the fear and suspense out of how people view a company’s future. Just that alone makes strategic planning valuable to a business.

THE PRINCIPLE
The principle here is that strategic planning and strategic plans are great tools for minimizing suspense in business. We should use them to that end in order to reap the benefits.

There are four main ways in which strategic plans and strategic planning can help take the suspense out of business.

1. Minimizing the Unknown
One of the great benefits of a strategic planning process is that it gets people to think about the future long before that future is a reality. The more time you spend pondering the future before it arrives, the more prepared you are for it when it arrives. It is no longer a surprise.

A good strategic planning process should use some of that time to gather “facts” about the future. Although we can never understand with 100% certainty what the future holds, we can study trends and other environmental factors to better understand what the future will likely be.

Strategies are played out in the context of the future. The better we understand that context, the better we can design the strategy.

There are lots of ways to gather these “future facts.” You can purchase insights from experts in the field of futurists and trend watchers. You can have an internal strategy team conduct a lot a research (primary and secondary). You can draw from the expertise of your network of employees, customers and suppliers. You can go out to the edge of society where trendsetting typically occurs and see what they are up to. Or you can do a combination of these or other approaches.

The important thing is to get smart about the future, so that it more known and less surprising.

2. Minimizing the Uncertainty
Even after gathering a lot of “future facts”, you will still not be able to predict the future with 100% accuracy. Even so, you can still eliminate a lot of the suspense around the remaining unknown by preparing for multiple outcomes.

Through strategy tools like scenario planning or real options, companies can build multiple potential outcomes into their view of the future. By anticipating these various outcomes in advance, one can prepare the proper strategic variations for each scenario.

If you have prepared an answer in advance for each of the likely scenarios, you can have high confidence in your future performance even if you have low confidence in any particular scenario occurring. In other words, even if the future is uncertain, your strategic path can be certain if it includes answers for addressing the uncertainty of multiple scenarios. The unknown is a lot less scary if you are ready for a variety of potential “surprises.”

3. Smoothing the Bumps
Every strategic initiative has a life-cycle. There is a growth phase, a maturity phase, and a decline. The problem with many companies is that they do not adequately prepare for these transitions from one phase to the next. As a result, they end up with a trench of unstable performance—a period of strength followed by a period of decline followed by a slow ramp up to something else followed hopefully by another phase of strength (see chart).



That’s a lot of suspense. How low will the decline go? How soon will they find a replacement strategy? Will the replacement strategy succeed? If so, how long will it take? This is one of the problems Kodak is facing. They waited until analog imaging was virtually dead before becoming aggressive in digital imaging. There is much suspense over whether they will survive the trench. The company may end up dying with the death of the old analog business.

A much better approach is to anticipate the decline of the current strategic initiative and start building the replacement strategy while the current strategy is still strong. That way, by the time the old strategy starts declining, you already have a strong replacement. There is no trench of suspense in this approach. Instead, performance is relatively stable (see chart).



Best Buy has a strong history of using this approach. They aggressively go after the next new technology before the old one is obsolete, so that they can seamlessly move from strength to strength.

Strategic planning plays a role here by anticipating the future so that the trenches can be avoided. It forces the discipline of building the replacement strategies in advance.

4. Communicating Confidence
Plans should not be a kept a secret. They should be shared widely with employees and other key stakeholders. The more your employees and investors see and understand your strategy, the more confidence they will have in your future. And the more confidence they have, the less scared they will be about your future prospects. And the less scared they are, the more you will be able to achieve those benefits mentioned at the beginning of the blog. By contrast, if you are silent about your plans for the future, people will tend to think the worst and become even more afraid.

Strategic plans are a great promotional tool to ease the fears of your stakeholders and create confidence. Don’t be afraid to take advantage of this.

SUMMARY
Suspense and fear are enemies of a company. They can increase your cost of capital and make it harder to get and retain great employees. To ease the fears and make the future less scary, use strategic planning to a) learn more about the future, b) create contingencies for the unknown, c) smooth out the bumps in strategic transitions, and d) communicate confidence in the future by having a plan for it.

FINAL THOUGHTS
Keep your suspense at the movie theater, not in your business.